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AP Microeconomics

Subjects : economics, ap
Instructions:
  • Answer 50 questions in 15 minutes.
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  • Match each statement with the correct term.
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This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. AVC = TVC/Q






2. The total quantity - or total output of a good produced at each quantity of labor employed






3. A market structure characterized by a few small firms producing a differentiated product with easy entry into the market






4. Measures the value of what the next unit of a resource (e.g. - labor) brings to the firm. MRPL = MR x MPL. In a perfectly competitive product market - MRPL = P x MPL. In a monopoly product market - MR < P so MRPm < MRPc.






5. Direct - purchased - out-of-pocket costs paid to resource suppliers provided by the entrepreneur






6. Ed = 8 - infinite change in demand to price change






7. Occurs when there is no more incentive for firms to enter or exit. P=MR=MC=ATC and profit = 0






8. The combination of labor and capital that minimizes total costs for a given production rate. Hire L and K so that MPL / PL = MPK / PK or MPL/MPK = PL/PK






9. A measure of industry market power. Sum the market share of the four largest firms and a ratio above 40% is a good indicator of oligopoly






10. Production of maximum output for a given level of technology and resources. All points on the PPF are productively efficient






11. In the case of a public good - some members of the community know that they can consume the public good while others provide for it. This results in a lack of private funding and forces the government to provide it






12. The most desirable alternative given up as the result of a decision






13. Additional benefits to society not captured by the market demand curve from the production of a good - result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good






14. Total revenue rises with a price increase if demand is price inelastic and falls with a price increase if demand is price elastic






15. Two goods are consumer complements if they provide more utility when consumed together than when consumed separately






16. The downward part of the LRAC curve where LRAC falls as plan size increases. This is the result of specialization - lower cost of inputs - or other efficiencies of larger scale.






17. Pmc < MR = MC and Pmc > minimum ATC so outcome is not efficient - but profit = 0.






18. Exists when the production of a good imposes disutility upon third parties not directly involved in the consumption or production of the good






19. Exists when the production of a good creates utility for third parties not directly involved in the consumption of production of the good






20. The philosophy that a citizen should receive a share of economic resources proportional to the marginal revenue product of his or her productivity






21. A group of firms that agree not to compete with each other on the basis of price - production - or other competitive dimensions. Cartel members operate as a monopolist to maximize their joint profits






22. Costs of inputs - technology and productivity - taxes/subsidies - producer speculation - price of other goods that could be produced - and number of sellers all influence supply






23. Occurs when LRAC is constant over a variety of plant sizes






24. The sum of consumer surplus and producer surplus






25. Ed = (%dQd)/(%dP). Ignore negative sign






26. Labor demand for the firm is MRPL curve. The labor demanded for the entire market DL = ?MRPL of all firms






27. Excess demand; a shortage exists at a market price when the quantity demanded exceeds the quantity supplied






28. Substitutes - cost as percentage of income - and time to adjust to price changes all influence price elasticity






29. Ex -y = (%dQd good X) / (%d Price Y). If Ex -y > 0 - goods X and Y are substitutes. If Ex -y < 0 - goods X and Y are complementary






30. Exists if a producer can produce more of a good than all other producers






31. A period of time too short to change the size of the plant - but many other - more variable resources can be changed to meet demand






32. A legal minimum price below which the product cannot be sold. If a floor is installed at some level above the equilibrium price - it creates a permanent surplus






33. All firms maximize profit by producing where MR = MC






34. Has opposite effect of an excise tax - as it lowers the marginal cost of production - forcing the supply curve down






35. The change in quantity demanded resulting from a change in the price of one good relative to other goods






36. Two goods are consumer substitutes if they provide essentially the same utility to consumers






37. The rate paid on the last dollar earned. This is found by taking the ratio of the change in taxes divided by the change in income






38. The change in quantity demanded that results from a change in the consumer's purchasing power (or real income)






39. Exists at the point where the quantity supplied equals the quantity demanded






40. A firm that has market power in the factor market (a wage-setter)






41. Costs that do not vary with changes in short-run output. They must be paid even when output is zero.






42. Holding all else equal - when the price of a good rises - consumers decrease their quantity demanded for that good






43. The marginal utility from consumption of more and more of that item falls over time






44. Ed = 1






45. The upward part of the LRAC curve where LRAC rises as plant size increases. This is usually the result of the increased difficulty of managing larger firms - which results in lost efficiency and rising per unit costs.






46. Ei > 1






47. The proportion of the tax paid by the consumers in the form of a higher price for the taxed good is greater if demand for the good is inelastic and supply is elastic






48. The mechanism for combining production resources - with existing technology - into finished goods and services






49. A legal maximum price above which the product cannot be sold. If a floor is installed at some level above the equilibrium price - it creates a permanent shortage






50. The difference between the price received and the marginal cost of producing the good. It is the area above the supply curve and under the price







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